SEC and Egan-Jones

https://www.futureofcapitalism.com/2013/01/sec-and-egan-jones

A press release from the Securities and Exchange Commission announces a settlement by which the Egan-Jones Ratings Company and its president Sean Egan "agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO." An NRSO, if you were wondering, is a "Nationally Recognized Statistical Rating Organization."

It raises the question of why we have Nationally Recognized Statistical Rating Organizations in the first place. There's no government license required to rate movies or restaurants or books or cars as a critic; movie-watchers, restaurant-goers, readers, and car-buyers can decide on their own whether the critics' opinions are worth paying attention to or paying money for. Yet when it comes to securities, the government insists on granting certain raters this "Nationally Recognized" stamp of approval. It wasn't much consolation during the financial crisis, when plenty of securities rated AAA by the NRSOs like Moody's or S&P turned out to be "toxic," at least temporarily, or at least illiquid or worth much less than it had been thought to be a few months before.

This isn't so much a criticism of the SEC — if someone provides false information on an application to be an NRSO, the agency should probably, as it did, take action. But there's a place for the Congress and the president to change these rules. More context on this issue is in an earlier post here.